Getting paid and money management can be tricky business
because, in addition to customers, cash flow and managing your
accounts properly is what keeps your business humming along.
Consequently, getting paid in full and on time, as well as
understanding money management, has to become a priority, even if
you elect to hire an accountant or bookkeeper to manage the books.
You will still need to familiarize yourself with basic bookkeeping
and money management principles and activities such as
understanding credit, reading bank statements and tax forms, and
making sense of accounts receivable and payable. You also have to
give careful consideration to the purchase payment options you
offer customers, including cash, checks, debit cards, credit cards
and online payment options, as well as establishing payment terms
and debt collection in the event of nonpayment.

Opening a Bank Account

Once you've chosen a name and registered your business, you
will need to open a commercial bank account. Setting up a business
bank account is easy. Start by selecting the bank you want to work
with--think small-business-friendly--and call to arrange an
appointment to open an account. There's not much more required
than that. However, when you go, make sure you take personal
identification as well as your business name registration papers
and business license, because these are usually required to open a
commercial bank account. The next step will be to deposit funds
into your new account (even $100 is okay). If your credit is sound,
also ask the bank to attach a line of credit to your account, which
can prove very useful when making purchases for the business or
during slow sales periods to cover overhead until business
increases. Also be sure to ask about a credit card merchant
account, debit account, and other small business services.

Bookkeeping

When it comes time to set up your financial books, you have two
options--do it yourself or hire an accountant or bookkeeper. You
might want to do both by keeping your own books and hiring an
accountant to prepare year-end financial statements and tax forms.
If you opt to keep your own books, make sure you invest in
accounting software such as Quickbooks or Quicken because they're easy to use and
makes bookkeeping almost enjoyable. Most accounting software
programs allow you to create invoices, track bank account balances
and merchant account information, and keep track of accounts
payable and receivable.

If you're only washing windows on weekends to earn a few
extra bucks, there's little need for accounting software or
accountant services. Simply invest in a basic ledger and record all
business costs and sales. Since you are doing it on your own, be
sure to use a commonsense approach when calculating how much to
invest in your business vs. expected revenues and profits. Also
remember to keep all business and tax records in a dry and secure
place for up to seven years. This is the maximum amount of time the
IRS and Revenue Canada can request past business revenue and
expense information.

Before you start making money, you've got to figure out how
you're going to accept payments, establish payment and credit
terms, and manage your finances. This how-to will help.

Accepting Cash, Checks and Debit Cards

In today's super-competitive business environment, you must
provide customers with many ways to pay, including cash, debit
card, credit card and electronic cash. There is a cost to provide
these payment options--account fees, transaction fees, equipment
rental and merchant fees based on a percentage of the total sales
value. But these expenses must be viewed as a cost of doing
business in the 21st century. You can, however, reduce fees by
shopping for the best service with the best prices. Not all banks,
merchant accounts and payment processing services are the same, and
fees vary widely. You can also check with small business
associations such as the chamber of commerce to see if they offer
member discounts; it's not uncommon to save as much as 2
percent on credit card merchant fees. Just remember, consumers
expect choices when it comes time to pay for their purchases, and
if you elect not to provide these choices, expect fewer sales.

Cash is the first way to get paid, which is great because
it's liquid and there's no processing time required. As
fast as the cash comes in, you can use it to pay bills and invest
in business-building activities to increase revenues and profits.
The major downside is that cash is risky because you could get
robbed or lose it. In cases like that, collecting from your
insurance company could prove difficult if there's no paper
transaction as proof. Even if you prefer not to receive cash, there
are people who will pay in cash, so get in the habit of making
daily bank deposits during daylight hours. Also invest in a
good-quality safe for cash storage for times when you cannot get to
the bank.

If you're running a service business, one the most popular
way people still pay for services is with a check. You have to take
a few precautions to ensure you don't get left holding a rubber
check, especially when dealing with new clients. Ask to see a photo
ID and write the customer's driver's license number on the
check. If the amount of the check exceeds a few hundred dollars,
ask the buyer to get the check certified or pay with a bank draft
instead, especially if the client is new to your business. Also get
in the habit of checking dates and dollar amounts to make sure they
are right. I have been caught a few times with wrong dates and
dollar amounts and it can be time-consuming to have to get a new
check because of a simple error.

Debit cards are another option, but to accept them, you will
need to buy or rent a debit card terminal. Most banks and credit
unions offer business clients debit card equipment and services.
The processing equipment will set you back about $40 per month for
a terminal connected to a conventional telephone line and about
$100 per month for a cellular terminal, plus the cost of the
telephone line or cellular service. There is also a transaction fee
charged by the bank and payable by you every time there is a debit
card transaction, which ranges from 10 cents to 50 cents per
transaction, based on variables such as dollar value and frequency
of use.

Opening a Credit Card Merchant Account

Many consumers have replaced paper money altogether in favor of
plastic for buying goods and services. In fact, giving your
customers the option to pay for purchases with a credit card is
often crucial to success. This is especially true if you plan to do
business on the web because credit cards and electronic cash are
used to complete almost all web sales and financial transactions.
To offer customers credit card payment options, you will need to
open a credit card merchant account. Get started by visiting your
bank or credit union or by contacting a merchant account broker
such as 1st American Card Service, Cardservice
International or Merchant Account Express to inquire about
opening an account. Providing your credit is sound, you will run
into few obstacles. If your credit is poor, you may have
difficulties opening a merchant account or have to provide a
substantial security deposit. If you are still unsuccessful, the
next best option is to open an account with an online payment
service provider, which is discussed in the next section.

The advantages of opening a credit card merchant account
enabling you to accept credit card payments are numerous. In fact,
studies have proven that merchants who accept credit cards can
increase sales by up to 50 percent. Not to mention that you can
accept credit card payments online, over the telephone, by mail and
in person, as well as sell services on an installment basis by
obtaining permission to charge your customer's credit card
monthly or per agreement. Of course, all these benefits come at a
cost, especially when you consider that you'll have to pay an
application fee, setup fee, purchase or rent processing equipment
and software, pay administration and statement fees, and pay
processing and transaction fees ranging from 2 to 8 percent on
total sales volume. Once again, these fees must be viewed as the
cost of doing business.

Online Payment Services

Online payment services allow people and businesses to exchange
currency electronically over the internet. These services are very
popular with consumers and merchants. PayPal is one of the
more popular online payment services with more than 40 million
members in 45 countries, offering personal and business account
services. Both types of accounts allow funds to be transferred
electronically among members, but only the business account enables
merchants to accept credit card payments for goods and services.
The advantages of online payment services are that they're
quick, easy and cheap to open, regardless of your credit rating or
anticipated sales volumes, and you can receive payment from any
customer with an e-mail account. You can have the funds deposited
directly into your account, have a check issued and mailed, or
leave funds in your account to draw on using your debit card. The
only real disadvantage is that most services redirect your
customers to their website to complete the transaction. This can
confuse people who in some cases will abandon the purchase.
Nonetheless, the advantages of online payment services far outweigh
any disadvantages.

Establishing Payment Terms

Every small-business owner also needs to establish a
payment-terms policy. Although you certainly want to standardize
the way you get paid, at the same time you will also have to be
flexible enough to meet clients' needs on an individual basis.
Setting payment terms covers deposits, progress payments and
extending credit. It's important to establish clear, written
payment terms with clients prior to providing services or
delivering product. Your payment terms should be printed on your
estimate forms, included in formal contracts and work orders, and
printed on your final invoices and monthly account statements.

Securing Deposits

If you're run a service business, you have to get in the
habit of asking clients for a deposit prior to providing services,
especially if the work also involves product sales that have to be
paid for by you in advance. In this case, the deposit should be for
at least the value of the materials. If you're supplying labor
only, try to secure a deposit of at least one-third to one-half of
the total value of the contract in advance of providing any
services. Your order form or contract should have the deposit
information clearly stated. Information on canceled orders or
contracts and your refund policy should also be on your forms.
Securing a deposit is your best way of ensuring that, at minimum,
basic out-of-pocket costs are covered should the customer cancel
the job or contract.

Progress Payments

Progress payments are also a way to ensure that you do not leave
yourself open to financial risk. The key to successfully securing
progress payments is to prearrange your contract and payment terms.
Agree on the amount that will be due at various stages of the
project. You can use percentages to calculate the progress
payments, such as 25 percent deposit, 25 percent upon delivery of
any materials, 25 percent upon substantial completion, and the
balance at completion or within 30 days of substantial completion.
Or you may arrange for more concrete progress payments based on
indicators that are relevant to the specific scope of work, the job
or the services provided. Regardless of the system you use,
progress payments on larger jobs can dramatically lessen your
exposure to financial risk.

Extending Credit

In most cases there's no need to extend credit to consumers
unless you deliver a service such as pest control that's billed
monthly or a major contract that is completed in stages. As a
general rule, when a transaction is complete you should be paid in
full. However, in the case of business-to-business sales,
commercial clients will generally want some type of credit on a
revolving-account basis, such as 30, 60, 90 or sometimes 120 days
after delivery of the product or completion of the service.
Ideally, you want to be paid as quickly as possible, so you might
want to offer a 2-percent discount if invoices are paid within one
week. And if you do extend credit, make sure to conduct a credit
check first, especially when large sums of money are at stake.
There are three major credit-reporting agencies serving the United
States and Canada: Trans Union, Equifax and Experian. All three credit bureaus compile and
maintain credit files on just about every person, business and
organization that has ever applied for credit.

Debt Collection

No matter how careful you are when it comes to extending credit
privileges to customers, once in a while you will not be paid on
time or at all. What can you do to get paid? The first rule of
getting paid is to keep the lines of communication open with your
delinquent client, and keep the pressure on to get paid through the
use of nonthreatening telephone calls, letters and personal visits.
You cannot legally intimidate clients into paying you, but you can
explain why it is in their best interest to pay you--namely, to
keep your business relationship intact, that nonpayment can hurt
their credit rating or that you may sue them if they do not
pay.

Another option is to hire a collection agency to collect the
outstanding debt. Collection agencies generally charge a percentage
of the total amount owed as their fee, which can range up to as
much as 50 percent. The Association of Credit and Collection
Professionals is a good starting point for finding a collection
agency to work with.

Your final option is to take the delinquent account to
small-claims court, but remember that small-claims courts have
limits as to how much you can sue for in your state or province,
ranging from $1,500 to $25,000. Filing fees vary by state and
province as well, and these must be paid upfront. But if you win,
the fees are added to your award. As a rule of thumb,
small-business owners that take people to court for nonpayment
generally represent themselves, as the amount of the potential
award is usually small and doesn't justify lawyers' fees
and expenses. Even if you win, you will not necessarily be paid the
amount you're awarded. You may win a judgment, but still have
to chase the defendant through garnishment of income or seizure of
assets to get paid. You can learn more about the small-claims court
process and filing fees by contacting your local courthouse.